Roadshow, Öhman Baltic Banking Day, Priit Perens

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Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.

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Roadshow, Öhman Baltic Banking Day, Priit Perens

  1. 1. Swedbank Estonia Q3 2008 Priit Perens
  2. 2. 2 I Overview of the macroeconomic situation II Overview of the Banking sector in Estonia III Swedbank Estonia - Market shares/volumes - Financial results - Credit portfolio
  3. 3. 3 Estonian economy is rebalancing
  4. 4. 4 Estonian macroeconomic environment • 2006-2007 Estonian rapid GDP growth was based on internal consumption and inflow of external money • Now GDP growth is negative (-0,5%, Eurostat) • Consumer confidence is dropping bringing down internal consumption • Residential real estate market is illiquid and prices are down around 20 % • Import is declining (-6% in August yoy), export growth is still strong (+8% in August yoy) • Economy is rebalancing, but further development depends on success in building more competitive export companies. • Dependence on foreign funding still high – loan deposit ratio ca 189% • KEY Issues: – How are our export target countries economies doing? – Access to liquidity?
  5. 5. 5 GDP growth has dropped to negative area -15% -10% -5% 0% 5% 10% 15% 1990 1993 1996 1999 2002 2005 2008p 2011p
  6. 6. 6 Belief into the future has vanished But there is strong effect of international financial crisis Confidence indexes -60 -40 -20 0 20 40 60 May-02 May-03 May-04 May-05 May-06 May-07 May-08 industry consumer construction retail service
  7. 7. 7 Low confidence is reflected in the consumption Annual growth of retail sales -40% -20% 0% 20% 40% 60% 80% Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 retail total cars and related items other goods clothes furnishings etc During the last months the car sales down average by 38%, incl. new cars 24%, used cars 47%
  8. 8. 8 Without consumption there is no production … Growth of industrial production -10% -5% 0% 5% 10% 15% 20% 25% Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 industrial production manufacturing industry production export sales internal market sales
  9. 9. 9 But rumors about death of core Estonian export are exaggerated Annual export growth -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 -400% -300% -200% -100% 0% 100% 200% 300% 400% 500% electronics passanger cars other goods mineral products (rhs)
  10. 10. 10 Labor cost per hour in Euros/ 2006 0 10 20 30 40 Estonia Latvia Lithuania Finland Sweden Germany
  11. 11. 11 There is no dominant sector in Estonian export (Jan-Aug 2008, change in the brackets) groceries (13.8%) chemical products (18.3%) electronics (+13.2%) machinery etc (+7.8%) vehicles (-0.1%) others (6.5%) textiles (-1.8%) mineral products (-21.2%) wood, paper (-2.7%)
  12. 12. 12 CAD, % to GDP -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 05(I) 05(III) 06(I) 06(III) 07(I) 07(III) 08(I) -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% goods services income transfers export growth import growth Rebalancing of economy
  13. 13. 13 The components of CAD, % to GDP -25 -20 -15 -10 -5 0 5 10 2007 2008 6M goods and services FDI reinvested FDI dividends interests other private sector return/transfers EU funds Estonian government payments
  14. 14. 14 Real estate market: Estonia Gradual correction in residential market since April 2007 Market situation • Lower numbers of transactions, longer sale periods and decreasing prices in residential real estate • Apartment prices down -22% from peak in Apr’07. Further decrease is likely. • Difficult to sell apartments in unfinished buildings • Largest decrease in transactions of land plots due to higher construction costs and higher risk to complete the construction without a profit Market outlook • Several developers have liquidity problems and stock of unsold apartments is increasing. It is likely that prices on new apartments will continue to decrease • Risk of tenants reducing their office areas. Start- up office projects and office buildings with weak concepts and poor quality will be most affected • The quality of tenant mix, rental agreements, location, popularity of retail centers will be crucial 10 12 14 16 18 20 2002 2003 2004 2005 2006 2007 EUR/m2/month 0% 5% 10% 15% 20% 25% Vacancyrate Rent rate Vacancy rate Tallinn apartment price and transaction development Tallinn office rent and vacancy development 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 EUR/m2 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 Nooftransactions No of deals (rhs) Average price (lhs) Source: * Residential data – Estonia land board ** Office data – credit analysts data
  15. 15. 15 Banking market
  16. 16. 16 Estonian Banking Sector: Financing* and Deposits 0 2,000 4,000 6,000 8,000 10,000 12,000 03/03 09/03 03/04 09/04 03/05 09/05 03/06 09/06 03/07 09/07 03/08 09/08 mioEUR 50% 70% 90% 110% 130% 150% 170% 190% Financing - Corporate Financing - Private Deposits - Corporate Deposits -Private Loan/deposits (rhs) *Financing – loan, leasing, factoring
  17. 17. 17 Estonian Banking Sector: Credit quality 0% 1% 2% 3% 4% 5% 09- 97 09- 98 09- 99 09- 00 09- 01 09- 02 09- 03 09- 04 09- 05 09- 06 09- 07 09- 08 Overdue >60 days Provisions
  18. 18. 18 Bank debt to GDP • Note: Outstanding bank debt only. Leasing/factoring excluded; other forms of corporate financing excluded. Financial institutions excluded. Public sector under corporate. Outstanding bank debt to GDP - Estonia 13% 13% 15% 20% 20% 19% 18% 18% 18% 20% 24% 32% 43% 47% 2% 2% 3% 6% 5% 7% 7% 8% 11% 14% 19% 28% 38% 45% 0% 10% 20% 30% 40% 50% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Corporate Private Outstanding bank debt to GDP (2007) 0% 100% 200% 300% 400% Estonia Latvia Lithuania CzechRepublic Hungary Slovakia Slovenia Poland Portugal Spain Ireland Denmark Finland Sweden
  19. 19. 19 Swedbank Estonia
  20. 20. 20 Highlights • Long-term focus maintained on core strategic strengths - performance culture, credit skills, wide distribution and strong team • Short-term focus on managing the business through the economic cycle with particular focus on productivity and asset quality • Steps taken in the beginning of 2007 have slowed down credit growth and the trend is expected to continue throughout 2008. As a result, minor deterioration in market shares has been visible and is also expected going forward. However, no major change is expected. • Employee productivity is being monitored closely and employee growth will be negative during 2008 given slowdown in volume growth. Operational efficiency program is gradually rolled out in all countries. • Credit teams have been strengthened and work-out processes are being reviewed to a more pro-active stance. Asset quality indicators (credit losses, overdues) have risen according to expectations
  21. 21. 21 Loans and Deposits Deposits (group consolidated) * 90 117 -115 -150 -100 -50 0 50 100 150 1Q 08 2Q 08 3Q 08 EURm Loans (incl leasing&factoring) change * 229 255 118 0 50 100 150 200 250 300 1Q08 2Q08 3Q08 EURm Loan (incl leasing&factoring) change 9m 2008 602 1,411 0 200 400 600 800 1,000 1,200 1,400 1,600 BB Est Market EURm Deposits' change 9m 2008 (bank solo) 155 408 -50 200 450 700 BB Est Market EURm Loan (inl leasing and factoring) to deposits 100% 150% 200% 250% 12/06 03/07 06/07 09/07 12/07 03/08 06/08 09/08 Rest of the Market Swedbank Estonia * According to Management reporting (consolidated). Trade Finance portfolio was taken into Estonian books from January (loan +111 m EUR; deposits +71 m EUR) This change was eliminated from 1Q 2008 change
  22. 22. 22 Market Shares Dec 06 Dec 07 Jun 08 Sept 08 Mortgage 49.2% 48.9% 48.7% 48.6% Consumer finance 59.0% 55.0% 55.3% 55.3% Corporate financing 46.0% 43.4% 43.1% 42.9% Car leasing 56.1% 53.6% 52.7% 52.2% Deposits 53.2% 53.0% 54.4% 52.4% P2S 52.3% 52.4% 52.6% 53.0% Funds 53.9% 57.6% 56.4% 54.9% Domestic payments 65.4% 65.0% 65.0% 64.9% POS 61.2% 62.3% 65.9% 68.0%
  23. 23. 23 Quarterly trend - Estonia Net profit 57 60 62 47 52 49 52 0 10 20 30 40 50 60 70 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 mlnEUR Cost - Income ratio 36.1% 37.6% 34.4% 42.5% 37.9% 39.9% 36.3% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Return on Equity 41% 41% 39% 28% 33% 32% 32% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Credit losses 3 2 8 10 7 11 14 0 2 4 6 8 10 12 14 16 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 mlnEUR
  24. 24. 24 Performance against mid-term financial targets *Net loan losses = (changes in general and special provisions + net write offs) / credit portfolio at the beginning of the year <0.35%0.55%0.76%Net loan losses 168.9% 38% 32% -14% YTD 2008 <42% >20% >20% BBTarget 168.9%Loan to deposit ratio 36%Cost-income 32%ROE on actual equity -15%EBT growth, YoY Q3 2008Estonia
  25. 25. 25 Financial highlights - Estonia 36.0%38.0%34.4%36.3%Cost-income 2.75%2.57%2.74%2.76%Net interest margin -7%2,7292,528Employees (FTE) 12%4,3604,883Deposits (mln EUR) 14% -15% 88% 5% -1% YoY % 32% 153 32 113 298 2008 YTD 7,2178,246Loans (mln EUR) 39%39%32%Return on Equity -14%1786252Net profit (mln EUR) 13 107 298 2007 YTD 147% 6% 0% YTD % 8 36 105 Q3 07 14Net Loan Losses (mln EUR) 38Expenses (mln EUR) 104Revenues (mln EUR) Q3 08
  26. 26. 26 Contribution to net income change ‘08 vs ‘07 YTD Net Fees & Commissions 67.8 75.4 2.9 -0.5 -0.5 -4.5 -5.0 50.0 55.0 60.0 65.0 70.0 75.0 80.0 07 YTD Card Loans Cash Securities Other Sept 08 EURm By main P&L items 153.2 178.1 -19.2 -25.9 22.0 -4.4-1.73.2 -7.5 8.7 130 140 150 160 170 180 190 200 210 220 NI 07 NII Net Fees Trading inc Inc fr Ins Other inc Pers exp Other Exp NLL NI 08 EURm Trading Income 1.6 27.4 -0.3 -9.4 -1.8 -11.6 -1.2-1.6 0 5 10 15 20 25 30 07 YTD Markets Eq Asset Man Eq Life Ins Eq P&C Ins Eq Treasury FI FX & cl margins 08 YTD EURm
  27. 27. 27 0 20 40 60 80 100 120 1Q08 2Q08 3Q08 4Q08 Reveue 2007 Revenue 2008 0 20 40 60 80 1Q08 2Q08 3Q08 4Q08 Net interest income Other income Net fees and commissions -10.0% Revenue -20 0 20 40 60 80 1Q08 2Q08 3Q08 4Q08 0 20 40 60 80 1Q08 2Q08 3Q08 4Q08 0 20 40 60 80 1Q08 2Q08 3Q08 4Q08 +12.1% -94.3% YoY +0.2% YoY +53.8% Trading 0 20 40 60 80 1Q08 2Q08 3Q08 4Q08 +120.1% Income from insurance 120.1%7.215.95.4%0.35.35.6Income from insurance 0.2%297.9298.35.2%5.199.4104.5Total revenues 53.8%5.99.12.3%0.13.23.3Other income -94.3%27.41.6-125.3%-5.04.0-1.0Trading income -10.0%75.467.8-0.9%-0.222.522.3Net fee income 12.1%182.0204.015.5%10.064.374.3Net interest income YoY% YTD 2007 YTD 2008QoQ%Delta2Q 20083Q 2008EUR in millions
  28. 28. 28 Operating expenses 0 10 20 30 40 50 1Q08 2Q08 3Q08 4Q08 Total OpEx 2007 Total OpEx 2008 0 10 20 1Q08 2Q08 3Q08 4Q08 0 10 20 1Q08 2Q08 3Q08 4Q08 0 10 20 1Q08 2Q08 3Q08 4Q08 0 10 20 1Q08 2Q08 3Q08 4Q08 0 20 40 1Q08 2Q08 3Q08 4Q08 0 10 20 1Q08 2Q08 3Q08 4Q08 Personnel IT Admin Marketing Other Group +3.7% YoY +8.0% YoY +27.8% YoY -9.4% YoY +24.0% YoY -34.1% YoY +5.7% YoY -115 -261 -1.7 -0.5 0.0 -0.7 -0.2 1.1 -0.4 -1.0 Delta -7.4%2 7292 528-9.4%2 7892 528Employees (FTE) -7.8%2 7202 506-4.4%2 6212 506Employees (FTE) excl pr 5.7%107.2113.4-4.3%39.637.9Operating expenses -34.1%10.16.7-16.2%3.02.5Group adjustments 5.8%2.32.5-1.4%0.80.8Depreciation 31.1%6.17.9-22.7%3.22.5Other expenses -9.4%4.54.1-11.1%1.51.3Marketing 27.8%16.621.215.7%7.08.1Administration 8.0%21.022.7-5.6%8.07.5IT expenses 3.7%46.548.3-6.0%16.215.2Personnel YoY%YTD 2007 YTD 2008QoQ%2Q 20083Q 2008EUR in millions
  29. 29. 29 Portfolio disclosure
  30. 30. 30 Private portfolio risk profile 0 750 1,500 1 2 3 4 5 6 7 8 9 10 11 12 EURm Q4 2007 Q2 2008 Q3 2008 SME/SSE risk profile 0 50 100 150 200 250 300 350 A A- B B- C C- D D- E E- F EURm Q4 2007 Q2 2008 Q3 2008 Large corporate risk profile 0 500 1,000 1 1- 2 2- 3 3- 4 4- 5 5- 6 6- 7 EURm Q4 2007 Q2 2008 Q3 2008 Estonia risk exposure (9 053 mEUR)*, Q3 2008 SME/SSE 16% mortgage 79% revolving 3% Large corporate 42% leasing 8% Private 43% consumer 10% * Risk exposure: on-balance + off-balance portfolio PD<1% Non- performing Non- performing Credit quality of the loan book Risk profile remains balanced • Well diversified portfolio dominated by retail exposures • Macro developments have triggered some downgrades in all segments: – Real estate sector drives downgrades in large corporate segment (exposure > 0.8 mio EUR). Downgrades counterweighted by new lending to low risk clients – SME/SSE has been the most sensitive to downturn. Acceptable risk profile (55% of portfolio with PD<1) – Private portfolio has low risk profile (78% with PD<1%) Non- performing PD<1% PD<1%
  31. 31. 31 Credit quality Swedbank Estonia overdue performance considerably better than the rest of the market Overdue over 60 days / current portfolio 0% 1% 2% 3% Dec.05 Mar.06 Jun.06 Sep.06 Dec.06 Mar.07 Jun.07 Sep.07 Dec.07 Mar.08 Apr.08 May.08 Jun.08 Jul.08 Aug.08 Sep.08 Rest of the market Swedbank Estonia (Bank) Provisions / current portfolio 0% 1% 2% 3% Dec.05 Mar.06 Jun.06 Sep.06 Dec.06 Mar.07 Jun.07 Sep.07 Dec.07 Mar.08 Jun.08 Sep.08 Rest of the market Swedbank Estonia (Bank)
  32. 32. 32 Corporate >60 day overdues Corporates (rating cust) 1.89% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 12- 06 03- 07 06- 07 09- 07 12- 07 03- 08 06- 08 09- 08 SSE 2.38% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 12- 06 03- 07 06- 07 09- 07 12- 07 03- 08 06- 08 09- 08 All Corporates 1.99% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 12- 06 03- 07 06- 07 09- 07 12- 07 03- 08 06- 08 09- 08 SME 2.08% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 12- 06 03- 07 06- 07 09- 07 12- 07 03- 08 06- 08 09- 08
  33. 33. 33 Large corporate portfolio Credit losses relatively isolated in the real estate sector Estonia Rating 6&7 exposures by industries 0 20 40 60 80 100 Commercial real estate Production Retailing Transportation Other EURm Q4 2007 Q2 2008 Q3 2008 Large corporate risk profile 0% 5% 10% 15% 20% 25% 1 1- 2 2- 3 3- 4 4- 5 5- 6 6- 7 Q4 2007 Q2 2008 Q3 2008 • Downgrades in large corporate (exposure > EUR 0.8m) portfolio has been counterbalanced with lending to customers with low risk • The main part of 6&7 ratings comes from real estate sector (in particular residential real estate development & early development)
  34. 34. 34 Lending by sectors Portfolio, (9053 EURm) Sept 2008 Other 22% Individuals 44% Transport 5% Retail & Wholesale 5% Real-estate mgmt 15% Construction 3% Industry 6%
  35. 35. 35 Real estate portfolio Most sensitive part of portfolio to current changes in macro environment. Developments according to expectation. • The residential real estate development is the most sensitive sector in Baltic Banking portfolio. Sensitivity’ has started to appear in overdue and default figures of corporate portfolio. • Around 60% from total Real Estate portfolio are cash flow generating properties with good tenant mix. • Properties under development process (25% of RE portfolio) are currently affected the most by decreasing prices and liquidity in the market. • Additional defaults in residential real estate development sector are anticipated in 2008, but no major surprises are expected due to previously implemented portfolio limitations and individual level monitoring. Restructuring capacity has been put in place. Real Estate 23% 6% 25% 25% 15% 6% Office Production & Warehouse Residential Retail Land plots Other
  36. 36. 36 Other sectors under close watch Transportation Trucking companies are facing problems due to increasing fuel prices and lagging freight rates. This global problem has started to reflect in Baltic Banking provisions (especially in SME segments) since the beginning of the year. Retail & wholesale Well performing sector with low levels of overdues, but potentially vulnerable to decreasing consumption Wood processing Raw material price increase coupled with sales price downwards pressure have a negative impact on Baltic wood processing industry. Current portfolio quality is around average with only few problem cases observed. Additional problems may occur after export duties will be imposed on Russian round wood as there is dependence on imported round wood in Estonia. * Overdues over 60 days / 12 months old portfolio
  37. 37. 37 13% 8% 79%Private >60 day overdues Mortgage 0.43% 0.88% 0.32% 0.12% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 12- 06 03- 07 06- 07 09- 07 12- 07 03- 08 06- 08 09- 08 Consumer finance 1.01% 1.60% 2.44% 1.81% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 12- 06 03- 07 06- 07 09- 07 12- 07 03- 08 06- 08 09- 08 Car leasing 0.63% 0.87% 1.35% 0.99% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 12- 06 03- 07 06- 07 09- 07 12- 07 03- 08 06- 08 09- 08 Total private 0.28% 0.48% 1.04% 0.58% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 12- 06 03- 07 06- 07 09- 07 12- 07 03- 08 06- 08 09- 08 mortgage consumer leasing
  38. 38. 38 Mortgage delinquency rates* Percentage of outstanding amount of loans 0 1 2 3 4 5 6 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Swedbank Estonia USA UK Spain Australia Canada France Finland Portfolio quality better than in more stable developed markets *Mortgages >90 days in overdues / portfolio Note: Loans refer to mortgages for all countries except Finland and Italy where they include all loans to the households sector. For Italy, they refer to new bad debts during the year as a percentage of outstanding loans.
  39. 39. 39 Mortgage portfolio Mortgage risk profile 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 1 2 3 4 5 6 7 8 9 10 11 12 Portfolio, Dec-07 Portfolio, Sept-08 0 50 100 150 200 250 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Growth Portfolio (right hand scale) Portfolio • Employers in difficulties – lower workload, loss of work, problems with salary (drop or delay in payment): mainly in companies connected to real estate, construction, transport, industrial goods, furniture and wood industry • Change of employment Main reasons for payment difficulty
  40. 40. 40 Mortgage LTV (indexed market values) Portfolio average LTV below 60% • Apartment / private house price drop in EE (- 22% from peak) has reduced positive effect from portfolio ‘maturing’ • Higher LTV portfolio issued for safe ‘home loan’ segment • No difference observed in overdue / default levels for ‘high’ and ‘low’ LTV segments. Estonia 64% 68%63% 0 250 500 750 1000 2000 2001 2002 2003 2004 2005 2006 2007 2008 EURm -20% 0% 20% 40% 60% 80% 21yAverage maturity 59%LTV, total portfolio - August '08 *Should be treated as conservative evaluation (do not account for guarantees and other non-residential RE collaterals) EE Indexed LTV values and maturity for private apartments / houses* Mortgage LTV and portfolio by year of origination Mortgage portfolio - LTV 0% 10% 20% 0- 10% 10- 20 20- 30 30- 40 40- 50 50- 60 60- 70 70- 80 80- 90 90- 100 >100 Back book, Sept 08
  41. 41. 41 Summary • Growth of Estonian economy has stopped • Resulting fast rebalancing of the economy. • Still high dependence on foreign funding (but not directly from the international markets) • Swedbank Estonia is showing relatively strong results, yoy income declined by 14% caused by increasing loan losses and losses from equities trading. • Efficiency still high • The Bank’s main activity is managing credit portfolio and improving efficiency • Credit portfolio quality is deteriorating. Residential real estate development under growing stress. No spillover to other sectors.
  42. 42. Thank you!
  43. 43. 43 Portfolio quality Credit losses driven by real estate defaults • Credit losses mostly driven by worsening macro situation • Real estate (in particular residential real estate development projects) is the main driver of credit losses • Trend is in line with updated credit loss forecast level Estonia 0.55%31.6Total 0.06%0.1- Other 0.34%0.6- Car leasing 1.79%3.0- Consumer products 1.30%1.0- Revolving 0.13%2.7- Mortgage 0.27%7.5Private individuals 0.67%6.4SME/SSE companies (exposure <0.8m EUR) 0.32%2.1- Other -0.16%-0.4- Transportation 0.45%0.8- Retailing 0.43%1.0- Production 1.76%14.3- Commercial real estate 0.84%17.8Rated companies (exposure >0.8m EUR) RatioEURmNet loan losses, YTD 9m 2008
  44. 44. 44 Key financials Estonia 29 bp57 bp50 bp58 bp76 bpNet loan losses 2.57% 38.0% 32.2% 83 153 153 113 298 YTD 2008 2.75% 36.0% 40.0% 131 178 178 107 298 YTD 2007 -7% -37% -15% -15% 5% -1% 12% 14% Q3 % ∆YoY -261 2 3 3 -2 5 -115 118 Q3 ∆ QoQ 2,789 2.41% 39.9% 31.5% 26 49 49 40 99 4,998 8,128 Q2 2008 -36% -14% -14% 6% 0% YTD % ∆ YoY 4428EVA on allocated equity 2,7292,528Employees (FTE)2 105104Revenues 3638Expenses 2.74% 34.4% 38.5% 62 62 4,360 7,217 Q3 2007 52EBT 8,246Loans 4,883Deposits 2.76%Net interest margin 36.3%Cost-income 32.2%Return on equity1 52Net income Q3 2008 in millions of EUR 1 ROE is calculated based on Swedbank capital allocation: 8.4% for the Baltics 2 without Group and IT
  45. 45. 45 Provisioning principles • Credit portfolio losses are recognised through special and portfolio provisions • Main guidelines for estimating provisions: • Key regulations for provision estimation are: provisioning principles and provisioning rates • Supplementary regulations are: LGD methodology and rating methodology • Current provisions constitute 1.05% of credit portfolio (111 EURm portfolio provisions and 106 EURm special provisions) • General and special provision rates are back-tested once per year. Historically provisions have always covered loan losses with a reserve product specific LGDOverdue >90 daysFixed rate based on product typeRetail fixed LGD (based on asset type for leasing) Overdue >90 daysFixed rate for all portfolioSME Individual assessment based on Net present value (based on discounted value of revalued collateral and cash flow) Rating 6 - 7 default frequency (based on rating) * LGD (based on credit analyst estimate) Large corporate Special provisioning for impaired assets Impairment trigger Portfolio provisions (for performing portfolio) Portfolio segment LGD – loss given default
  46. 46. 46 Regular process of outstanding loan review • Portfolio quality improvement measures introduced already in 2007 – Increased risk margin in certain sectors (eg real-estate) – Portfolio limitation and close individual level monitoring for higher risk segments – Stricter product conditions (LTV, service ratio, previous credit history). Ongoing review and adjustments Improved credit assessment process through better credit decision support applications (scoring/rating tools) • Share of real estate sector decreasing, existing portfolio regularly scrutinized • Strengthened risk units – Increased number of people dealing with problem loans – Strengthened workout team – Increasing cooperation with Swedabnk FR&R team – Improved the quality and increased frequency of portfolio quality reporting • Targets for new origination quality • Regular loan review process includes – Overall portfolio stress test once a year – Extensive portfolio analysis 2x per year, monthly/quarterly portfolio reviews + ad hoq individual portfolio deep-dive analysis – Monthly "watch list” report – IRB portfolio scoring 1x per month • On the individual loan basis: – Client rating review minimum 1x per year + review subject to material events – Rating classes 5 and higher are subject to more frequent assessment – Quarterly financials/covenants assessment – For SME/SSE and private portfolio weekly overdue report (with client names identified)
  47. 47. 47 Credit quality management process • Proactive management of watch list clients – Private clients - communication on step-by-step actions to take before falling into overdues. Development of standard remedial action to ensure serviceability of the credit (assistance in family budget planning, restructuring of payments, postponement of payments for temporary income loss; assistance in voluntary sale of assets) – Corporate clients - proactive communication, frequent client meetings and positive attitude to find solutions • Overdue management - concentrates on time horizon from occurrence of distress situation (either through late payment or on the bases of client information) to moving credit over to restructuring or workout phase. The primary focuses in overdue management is: – Process design for fast and prudent management of overdues, clear process ownership – Constant re-evaluation of the tactics on their effectiveness and adequacy – Clearly set timing and channel of client contacts – Build capacity to work with distressed clients and adequate training of employees – Centralized decision making – Internal target setting and incentives to reach targets – Up to time reporting and follow up on taken activities • Distressed debt restructuring – Defined tactics of restructuring. Solutions to ensure client serviceability of the debt (based on industry of the client, collateral structure) – Extended capacity to work with distressed clients – Effective solutions for collected collaterals handling

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